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Transcript of From Chevron to Cuozzo - Klarquist ... From Chevron to Cuozzo: Practical Impacts of Administrative...

  • From Chevron to Cuozzo: Practical Impacts of Administrative

    Law on PTO Proceedings March 2, 2017

    1:00 PM - 2:00 PM ET

    Panel Discussion Russell Cass – Sidley Austin LLP

    Andy Mason – Klarquist Sparkman LLP Lucas C. Townsend – Gibson, Dunn & Crutcher LLP


  • APA Background See December 6, 2016 Slide Deck

    (  publications  webcasts)


  • 3

    Administrative Procedure Act 5 U.S.C. §§ 551–559, 701–706

    • § 552(a)(1) – Agencies must publish in the Federal Register (inter alia): – rules of procedure; – substantive rules of general applicability; – statements of general policy; – interpretations of general applicability; and – amendments, revisions, or repeals of same.

  • 4

    Administrative Procedure Act 5 U.S.C. §§ 551–559, 701–706

    • § 553 – Rule making: – Notice of proposed rules must be published in the

    Federal Register. – Exception for “interpretive rules.” – “Interested person[s]” shall have an opportunity

    to comment. – Final substantive rules generally must be

    published in advance of their effective date.

  • PTO Factfinding

    • PTO factfinding is reviewed under the APA standards, 5 U.S.C. § 706 (“substantial evidence” or “arbitrary, capricious, abuse of discretion”), rather than the stricter “clear error” standard that governs review of trial court factfinding.

    • “[A] reviewing court must apply the APA’s court/agency review standards in the absence of an exception.”

    - Dickinson v. Zurko, 527 U.S. 150, 154 (1999). 5

  • PTO Factfinding

    Merck & Cie v. Gnosis S.p.A, No. 14-1779 (Fed. Cir. Apr. 26, 2016) • CAFC denied en banc rehearing on whether clear

    error standard (as opposed to substantial evidence standard) governs review of PTAB factual findings in IPRs.

    • Judge Newman dissented. • Supreme Court denied cert. on October 11, 2016. • Takeaway: Zurko still governs IPR review.


  • PTO Factfinding • Gechter v. Davidson, 116 F.3d 1454, 1457 (Fed. Cir. 1995): BPAI must

    state its findings with “sufficient particularity” to allow the Federal Circuit “without resort to speculation, to understand the reasoning of the Board, and to determine whether it applied the law correctly and whether the evidence supported the underlying and ultimate fact findings.”

    • Cutsforth, Inc. v. MotivePower, Inc., 636 F. App’x 575, 577 (Fed. Cir. 2016): “Broad, conclusory statements are not enough to satisfy the Board’s obligation to provide reasoned explanation for its decision.”

    • In re NuVasive, Inc., 15-1670, slip op. 8 (Fed. Cir. Dec. 7, 2016): “[T]he PTAB ‘must examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.’” (quoting Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)).


  • PTO Factfinding

    But: • In re Huston, 308 F.3d 1267, 1281 (Fed. Cir. 2002):

    “[W]e will uphold a decision of less than ideal clarity if the agency’s path may reasonably be discerned.”

    • In re NuVasive, Inc., 15-1670, slip op. 9 (Fed. Cir. Dec. 7, 2016): “Although we do not require perfect explanations, we may affirm the PTAB’s findings ‘if we may reasonably discern that it followed a proper path, even if that path is less than perfectly clear.’” (quoting Ariosa Diagnostics v. Verinata Health, Inc., 805 F.3d 1359, 1365 (Fed. Cir. 2015)).


  • Practice Pointers (PTO Factfinding)

    The Federal Circuit seems to be demanding greater explanation and clarity of reasoning in PTAB decisions. Questions to ask: • Can the agency’s logic be reasonably discerned? • Has the agency drawn a connection between its

    reasoning and the facts? • Is the agency relying on broad, conclusory

    statements? • NuVasive: Has PTAB articulated a reason why a

    PHOSITA would combine prior art references?


  • PTO Rulemaking

    Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131 (2016) • PTO has substantive rulemaking authority

    over IPRs pursuant to 35 U. S. C. § 316(a)(4). • The Supreme Court majority noted the

    Federal Circuit’s characterization of PTO’s “limited . . . procedural” rulemaking authority under § 2(b)(2)(A).


  • PTO Rulemaking Authority Over IPRs

    Synopsys, Inc. v. Mentor Graphics Corp., 814 F.3d 1309 (Fed. Cir. 2016) • PTAB final order need not address every claim

    raised in the petition for review. • PTO regulation (37 C.F.R. § 42.108) to that

    effect “is a reasonable interpretation of the statutory provision governing the institution of inter partes review.” – Suggests it is Chevron step 1, but applies Chevron

    step 2 in the alternative.


  • PTO Rulemaking Authority Over IPRs

    SAS Institute, Inc. v. Lee, No. 16-969 (U.S.) • Same question as in Synopsys: Does § 318(a)

    require the PTAB to issue a final written decision as to every claim challenged?

    • Cert. petition argues that plain text of § 318(a) requires decision on all challenged claims.

    • Argues against agency deference: – Internal Executive Branch conflict: US DOJ has argued

    against PTAB’s partial-institution, partial-decision practice.

    – PTO’s rationales for adopting regulation were insufficient.


  • PTO Rulemaking Authority Over IPRs

    In re Aqua Products: • § 316(d)(1) allows one motion to amend that proposes a

    reasonable number of substitute claims without enlarging the scope of the claims.

    • PTO regulation (37 C.F.R. § 42.20(c)) places burden on movant, and PTAB has interpreted that regulation to place the burden on the patentee to show that the proposed amendment would make the claims patentable over the known prior art.

    • The Federal Circuit panel applied that interpretation and held that PTAB did not abuse its discretion in denying the patentee’s motion to amend.


  • PTO Rulemaking Authority Over IPRs In re Aqua Products (cont’d) • Full Federal Circuit granted en banc rehearing and heard

    oral argument on December 9, 2016, on two questions: • (1) When patent owner moves to amend its claims under

    § 316(d), may the PTO place the burden of persuasion or burden of production on the patent owner regarding patentability of the amended claims? Which burdens are permitted on the petitioner under § 316(e)?

    • (2) When petitioner does not challenge the patentability of a proposed amended claim, or the Board thinks the challenge is inadequate, may the Board sua sponte raise patentability challenges to such a claim? If so, where would the burden of persuasion/production, lie?


  • PTO Rulemaking Authority Over IPRs In re Aqua Products (cont’d) • § 316(a)(9): authority to promulgate “standards and procedures

    for allowing the patent owner to move to amend the patent” to “propose a reasonable number of substitute claims.” – Idle Free Systems, Inc. (PTAB June 11, 2013): “For a patent owner’s

    motion to amend, 37 C.F.R. § 42.20(c) places the burden on the patent owner to show a patentable distinction of each proposed substitute claim over the prior art.”

    – MasterImage 3D, Inc. (PTAB July 15, 2015): “The ultimate burden of persuasion remains with Patent Owner, the movant, to demonstrate the patentability of the amended claims.”

    • Cf. § 316(e): “the petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence.”

    • Several Judges seemingly troubled by lack of notice-and- comment rulemaking for requiring movant to show patentability.


  • Practice Pointers (PTO Rulemaking) • Is the PTO rule the product of notice-and-

    comment rulemaking or adjudication? – Answer may determine the amount of deference, if

    any, that the agency’s interpretation will receive. – Orders lacking sufficient formality may not receive

    deference. – Post hoc rationales may not receive deference.

    • Is agency interpretation consistent with statute? – If not, interpretation may fail Chevron.


  • PTO Decisions To Initiate IPRs Cuozzo: • Patent Owner contested PTAB’s review of independent

    claims on which challenged dependent claim was based because independent claims were not expressly challenged in petition.

    • Supreme Court found judicial review barred by Section 314(d), which states that the “determination by the [Patent Office] whether to institute an inter partes review under this section shall be final and nonappealable.”

    • Section 314(d) bars judicial review “of the kind of mine-run claim at issue here” involving institution.

    • Section 314(d) may not bar “consideration of a constitutional question,” a “due process problem,” or allow agency “to act outside its statutory limits.”


  • PTO Decisions To Initiate IPRs – Time Bar

    • Achates Reference Publishing, Inc. v. Apple Inc., 803 F.3d 652, 658 (Fed. Cir. 2015): Section 314(d) bars review of PTAB decision to initiate